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Bloomberg Features Dr. Wright Op-Ed

An op-ed that explores how the Woonsocket Investment Company swayed the South Dakota electorate to its shareholders’ advantage, resulting in the decision to locate the capital of South Dakota in Pierre instead of Huron in 1890 by Dr. Robert Wright, Nef Family Chair of Political Economy and director of the Thomas Willing Institute at Augustana, is featured in "Echoes," the business history blog of Bloomberg View.

Recent changes in campaign-finance laws, prompted by the Supreme Court’s decision in the Citizens United case of 2010, have some people worried that corporations can now legally buy a presidential election.

Of course, directly paying citizens to vote for a certain candidate seems unlikely. Ballots are secret and can’t easily be traded, and voting contracts couldn’t be monitored for compliance, much less enforced in court. Under certain conditions, however, companies can almost buy votes outright – and it has happened before.

Any fifth-grader worthy of promotion can tell you the capital of South Dakota is Pierre. What few people of any grade can tell you is why, in 1889 and 1890, South Dakotans voted to make that tiny hamlet their temporary, and then their permanent, state capital. The story of these two obscure plebiscites in South Dakota is one of the oddest in the annals of campaign finance.

Pierre was located at the geographical center of the state, more or less, but was in the far western part demographically as most South Dakotans, then as now, lived in the eastern third of the state. In fact, Pierre was at the end of the Chicago and North Western line, directly across the Missouri River from a huge Indian reservation that still bubbled with trouble. (The massacre at Wounded Knee occurred in late December 1890.)

Money Pours In

Pierre’s main rival for the capital, Huron, was also on the Chicago and North Western line but lay 110 miles to the east, far from potentially dangerous natives and close to the prospective state’s demographic center. Huron was voted the temporary capital in 1885 and by 1890 was its de facto convention center due to its location. Even denizens of the Black Hills, in the far western part of the region, found it easier to get to Huron than to Pierre, which from the west was accessible only by horse and wagon through desolate tracts. Moreover, Huron was larger than Pierre and better appointed with hotels, newspapers and telephone exchanges.

Money soon poured into the campaign. The winning town was sure to experience a real-estate boom as the state government built a governor’s mansion, statehouse, court building and other offices. Moreover, government employment would bring with it long-term local economic stability.

Much of the campaign money canceled itself out as boosters of both towns competed to outdo each other with banners, buttons, newspaper puff pieces, parades, rallies and songs. Some resources, however, were used more effectively by aligning the interests of voters statewide with one of the two cities.

Enter the Woonsocket Investment Co., or WIC, named for a small town south of Huron. In an era before the Securities and Exchange Commission or even state “blue sky” laws, WIC was able to sell shares of itself to some 10,000 South Dakotans, about a fifth of the electorate. Although the historical record is sketchy, the company probably sold the shares via direct public offering, not intermediated by an investment bank, a common practice at the time.

WIC’s executives initially asked the town of Huron for land grants, hopeful that the local government would realize that WIC stockholders would then have a strong incentive to vote for Huron in the plebiscite. After being rebuffed there, they solicited Pierre, which wisely granted the company a number of city lots. Realizing that the value of those lots would increase if Pierre won, WIC’s thousands of stockholders turned out en masse, clinching the election for the tiny hamlet on the big river in 1889, the year South Dakota officially became a state. The following year, with taxpayer resources already sunk into Pierre, and WIC stockholders still eager to boost the isolated outpost for their own gain, Huron lost the election to be the permanent capital, too.

Sharing Profits

Huronites were enraged by WIC’s actions, but it was all legal. What WIC did, in a sense, was to share the profits created by the selection of a state capital with the broad segment of the population astute enough to buy its shares.

The consequences of this episode may seem minor. With fewer than 14,000 people, Pierre remains the second-least-populous state capital in the nation. But there was a more important legacy: South Dakota responded to WIC’s shenanigans by implementing a number of Progressive electoral reforms and became the first state to adopt initiative-and-referendum legislation, which allows citizens to force a vote on specific issues.

Today, with independent groups empowered by Citizens United to spend unlimited amounts on unrestricted attack ads and other political speech, the corporate ability to influence voters’ intentions seems ever more powerful. About 122 years after WIC cleverly swayed the South Dakota electorate to its shareholders’ advantage, how will the country respond to similar threats to its democracy?

(Robert E. Wright is the Nef Family Chair of Political Economy at Augustana College in South Dakota and the author of numerous books, including, with David Cowen, “Financial Founding Fathers: The Men Who Made America Rich.” The opinions expressed are his own.)